The statements regarding the adoption of the budget for the next year has boosted the dollar. It is the first step to the tax reform promoted by Donald Trump.Yet so far over the past week, the dollar has managed to gain some ground despite a rather ambiguous statistics.
On one hand, the industrial production growth rates accelerated from 1.2% to 1.6%. Also, the number of applications for unemployment benefits decreased. In particular, the number of primary decreased from 244,000 to 222,000 and and repeated from 1,904,000 to 1,888,000. There is a slightly increased sale in the housing of the secondary market, from 5.35 million to 5.39 million. However, the industry did not grow as strongly as expected, and there are fears that in the future it will decline, as the number of construction projects started to decrease by 4.7%. At the same time, these have been going down for the third month in a row. Moreover, the number of building permits issued decreased by 4.5%.
Nevertheless, the dollar strengthened and the data from Europe and Great Britain has helped the currency.
Inflation in the UK continues to grow and has already reached 3.0%. However, the head of the Bank of England, instead of paying attention to high inflation, expressed fears about the consequences of Brexit. However, since the refinancing rate reached 0.25%, inflation of 3.0% is fraught with huge risks and threatens to completely lose control over the situation on the part of the monetary authorities. Also, if the wages grow, it will most likely be much slower than inflation which was reflected in the growth rate of retail sales and slowed down from 2.3% to 1.2%. Hence, o it is clear that inflation is already damaging to the UK economy, and the Bank of England is in no hurry to take any action.
In Europe, there was not much data. The main news was the publication of data on inflation, but they completely coincided with the preliminary assessment, so few were surprised. The inflation stabilized at 1.5%, which is still below the target level. Also, the growth rate of the construction sector slowed from 3.4% to 1.6%.
Yet, the greatest effect on the market was entirely a different news. This is why there are rumors wherein, Donald Trump might change the head of the Fed. Moreover, if Janet Yellen advocates a gradual tightening of monetary policy, the alleged candidates for her post are supporters of a softer approach. This is rather strange because the current U.S. president advocated during the election campaign in raising interest rates. As soon as these rumors leaked in the media, the dollar fell sharply. But only a few hours later, it resumed growth. The U.S. Senate approved the budget for the next year, which was quite expected, but the market was impressed by the words of the head of the Republican majority in the Senate. He said that the adoption of the budget is the first step towards changing the tax laws, which Donald Trump is trying to pursue.
The main event of the week will be the ECB meeting on monetary policy. There is no doubt that the refinancing rate will remain unchanged so that all attention will be on the press conference of Mario Draghi. If he declares that in December the program of quantitative easing will be stopped, the single European currency will be able to strengthen its positions. At the same time, there is not much that can help the dollar since there will not be a lot of significant data during the whole week. In particular, the preliminary data on U.K. GDP should show a slowdown in economic growth. Although they are waiting for the same results in the U.S. Other than that, preliminary data on business activity indices in Europe may show a decline, while in the US the indexes are expected to grow. However, it is expected that sales of new homes in the US will decrease by 0.9%.
In general, the dollar may continue to grow prior to the ECB meeting on Thursday. However, it needs to give up its positions.
The EUR/USD pair may rise to 1.1815 by the end of the week.
The GBP/USD pair will first decline against the backdrop of a weak GDP data and then follow the single European currency. Lastly, it may finish the week at 1.3275.
